Economic Forecasting

Forecasting: Considerations for a Reasonable and Supportable CECL Forecast

Forecasting might not be top of mind as you prepare for CECL. Understanding the standard, deciding whether to handle the transition internally or engage third party assistance, gathering data, pooling, choosing a methodology – those issues drive our concerns well before we encounter a “reasonable and supportable” forecast. The forecasting piece is, in large part, what makes CECL different from incurred loss estimating. The Great Recession revealed the insufficiency of being able to reserve only for a probable or already incurred loss event; those years proved the incurred loss model “too little, too late.” The FASB determined we needed a forward-looking component to be prepared for an economic downturn when it comes – and not only a Great Recession, but a local economic jolt, like the closing of a factory that employs a significant portion of the local population. CECL allows us to do that, even to the extent of reacting to a rumor, be it from a credible source. Ultimately we are forecasting why the future is different from the past, be it better or worse. We do that using economic factors. External factors can be broad in scope, such as political turmoil or a trade war. Or they can be local, such as a weather event or the opening of a new business that will increase employment in your area. And they can reflect internal factors, like losing a quality loan officer to another institution, or signing new loan talent, or the closing of a competing institution. Here are a few things to consider when developing the forecasting piece of your CECL process: Initially, identify the variables that will determine expected losses. What specific factors apply to your population, your institution? Hone in on the most important factors; don’t complicate [...]

2018-11-05T13:17:42+00:00November 5th, 2018|Blog, CECL, Economic Forecasting|

Job Growth on a Roll; U.S. at Full Employment

Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics The Bureau of Labor Statistics’ jobs report for October was extremely strong. The November 2 release reported the U.S. added 250,000 jobs in the month, 31-plus percent more than the 190,000 expected. The other highlight number, hourly earnings, also grew substantially at 3.1 percent better than the average hourly wages reported in October 2017 – although the number is somewhat suspect given last year’s unusual decline in wages due to Hurricane Harvey. […]

2018-11-02T14:47:21+00:00November 2nd, 2018|Blog, Economic Forecasting, Economic Indicators|

Florence Distorts Job Numbers; Labor Market Remains Strong

Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics The headline numbers from the Bureau of Labor Statistics’ (BLS) September jobs report suggest a mixed employment situation. New jobs came in at just 134,000, well below the expected 180,000, while that headline unemployment rate, U3, fell 0.2 percentage points to 3.7 percent, slightly lower than the 3.8 percent expected. […]

2018-10-23T17:31:16+00:00October 9th, 2018|CECL, Economic Forecasting, Economic Indicators|

July Jobs: Below Expectations

Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics July jobs came in below expectations. The monthly Bureau of Labor Statistics reports released today showed 157,000 jobs were created in July versus a projected 190,000. However, upward revisions to previous months’ figures were notable, adding 59,000 jobs. Hiring was in business and professional services, manufacturing, and health care. Other sectors were essentially unchanged.   […]

2018-10-31T09:24:54+00:00August 3rd, 2018|Economic Forecasting, Economic Indicators|

March Jobs: Out Like a Lamb

Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics Consistent with the old maxim, “In like a lion, out like a lamb,” the March Bureau of Labor Statistics jobs report tempered February’s big gains with a net job creation figure of just 103,000, well below the expected 193,000. Given February’s numbers, some giveback was expected, though not so substantial.  […]

2018-10-24T11:24:51+00:00April 6th, 2018|Economic Forecasting, Economic Indicators|

MST Econ-Blog: Job Growth Continues, Outdistances Expectations

Guest blog by Tom Cunningham, PhD., Economist Altanta – August 5, 2016 . . . Like many of the issues politicians are arguing over, the economy is providing cause for encouragement and room for complaint. July’s employment report was very good, better than expected. The U.S. economy added 255,000 jobs, which outdistanced expectations of around 180,000. And the two previous months’ reports were revised upward slightly.  […]

2018-10-23T12:49:32+00:00August 8th, 2016|Economic Forecasting, Economic Indicators|

MST Econ-Blog: June Job Creation Outpaces Projections by 100,000

Guest blog by Tom Cunningham, Economist As employment is a key factor in projecting loan portfolio performance, current employment statistics and longer term trends are likely to be primary considerations for most banks and credit unions as they incorporate forward-looking economic factors in their expected financial asset loss projections. […]

2018-10-23T12:49:51+00:00July 8th, 2016|CECL, Economic Forecasting, Economic Indicators|